When starting up a business, there are ideas that are really brilliant but poorly executed, hence its failure. On the other side, there are businesses with less spectacular ideas at first but because of how well it was run, it flourished. Andrew Lanoie, an expert at building teams and connecting people with opportunities, takes us to his journey as he discovers a specific niche in real estate. He shares the different adversity that he faced early on as he focused to address the demands to have affordable housing.
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Building A Community Through Affordable Housing with Andrew Lanoie
This is our first episode where we are focused specifically on financial strategy ideas, which you can make an investment, put savings and capital. I have an amazing guest for this episode. Hopefully, our long-time audience should recognize his name because he’s been on before. His name is Andrew Lanoie. We have known each other for a better part of ten years and he is an incredible guy. I can’t wait for you to meet him and talk about what he’s been doing for the last several years in relation to a specific niche in real estate investing. Andrew is the Cofounder of Four Peaks Capital and he also is a Cofounder of Park Place Communities. Andrew, you’re always up to something and you’re an incredible entrepreneur. Welcome to the show and thanks for joining us.
Thanks, Patrick. I always appreciate catching up and thanks for having me on.
We met a long time ago at a real estate investments conference. We met in person. We did some business together previous to that. Why don’t you talk about the business you were in then and the transition you made, which is definitely not like a lateral transition? It’s a vertical leap type of transition.
It’s a bit unique. I was in Los Angeles for about twenty years and I was working in the entertainment industry. If anyone has seen the show Entourage on HBO, I basically worked at the William Morris Agency for about sixteen years. I worked at Beverly Hills. I represented comedians and touring artists. I did that for about sixteen years. When the subprime crash happened, my folks who had been retired and living in Florida lost a pretty significant part of their retirement savings. Dad was a plumbing inspector, mom was a nurse and they saved. They “Did everything right,” and still took a pretty big hit. That was my cue to pull my money out of the market were things I didn’t really understand and then start exploring alternative assets. That was around 2009 that I started dipping my toe into real estate.
You were involved in a few different elements of real estate. Your personal real estate investment, which you did quite a bit, but then you decided to make a business out of it. This is a business in a niche that you’ve shared with us on the Cash Flow Wealth Summit. For the audience of the podcast who don’t know about the Cash Flow Wealth Summit, we are part of an event that’s called the Cash Flow Wealth Summit. It’s an online virtual event that we do a once a year. Andrew and his companies were sponsors and presented on this specific niche, which is very intriguing. I’ve seen it in other companies and what they’ve tried to do in this specific niche of real estate. I love the model that Andrew and his partners have put together. Why don’t you tell us a little bit about the discovery of your specific niche and the opportunity that you’ve realized? What you guys have done to capitalize on it?
Backing up a little bit, it’s always good to know where you are in the market cycle. In 2009, I started buying single-family houses and markets that were all outside of California, which made a lot of sense. Prices were low, the rents were great and good stable markets. I did that for about four years and sometime around 2013, the prices started to rise in the single-family home space. At some point, the investments weren’t penciling out. I started looking around at other asset classes. I looked at commercial, I looked at multi-family and even back in 2013 or 2014, the multi-family felt like it’s starting to get a little frothy. Cap rates were decreasing and a lot of money being thrown around the space. I had a friend who had been buying some mobile home communities in the Midwest. Along with a few other different asset classes, I took a good look at that model and realized there was a massive opportunity there, specifically in manufactured housing. It all falls under affordable housing.
One thing too as you look at some of the adversity that you’ve probably faced early on where you got into this niche, there’s a stereotype associated with that type of real estate. I would say it probably parallels to what most people associate with any real estate investment, which is being a slumlord. When you go to that type of market, people want to stay away. How did you approach that stigma that existed? How did you figured out a way to use that as momentum to make this an incredible opportunity?
The first thing is if you take a step back and you look at the crisis that we’re having in the United States, in terms of affordable housing. You’ve got an annual median income of over $31,000 in the United States. That’s not household, that’s per person wage earner. If you’re looking at take-home pay, someone’s going to see about $25,000 a year over a couple thousand dollars a month. If you quarter that up, you’re looking at somewhere around $600 a month for a housing allowance. You’ve got a median one-bedroom apartment in the US or somewhere around $1,200. You’ve got the median mortgage somewhere around $1,000. 50% of wage earners are basically making this amount or less.We want people to own their homes and have some skin in the game. Click To Tweet
That was the big eye-opening moment. It’s like, “There’s a huge demand for affordable housing.” Manufactured housing and mobile home parks are simply the vehicle to put a dent in the space. It’s not a very sexy asset class. Going in and buying C-class apartment buildings and turning them around, you’re taking an asset that was once flourishing in a community in good spirit. Over time, maybe it went from 90% to 50% occupancy. Morale is out the window and maybe there’re people selling drugs in the community or whatever. Part of our whole purpose and drive in this space is to return the sense of community to these individuals and families, while still offering an affordable place to live.
I want to hit on that but I can’t help but want to reemphasize how most investors look at opportunity, especially when it comes to real estate. Sometimes the perspective that we have going in is that this has to meet our standards. This has to meet this qualification, this neighborhood, and this school system. That creates some filters that prevent people from making good investments or at least seeing a good opportunity. Looking at these communities, there is a big portion of the population that is in this category, this income level, and asset level. There’s just been an incredible boom in a sense with regards to new construction apartments. The big booming technology that expanded housing in a sense, but it’s also pushed up prices, whether single-family homes or even apartments.
It’s been very difficult for a certain element of the population to adjust that. This is why I look at the opportunity you have, which is essentially about existing mobile home parks, manufactured housing and what you’ve created as a system. The opportunity is there. There are ways in which you can be profitable with keeping rents, payments, or housing expenses low. The profound thing that lit me up when I talked to you and Mike about your vision regarding the future is, what you’re doing to create a community with these projects and communities that you’re taking on. Can you talk about, maybe integrate Mike’s background, who’s your partner? Then also this element of community that you are integrating into the investment so that it helps, not just with the return on investment but at the same time preserves a lot of good community. Not some of the things that could happen, whether it’s drug trafficking or other illegal activities, in the sense of preventing that which ultimately mitigates your risk?
The median lot rent in the communities that we own is about $280. We’re absolutely sitting in affordable housing. The challenge is in this space is there are a lot of moving pieces and that’s where my partner Mike Ayala comes in. He’s owned and operated these communities since 2007 but he also built a plumbing and HVAC Company from the ground up with about 110 employees in over ten years. He had a construction and a cabinetry company. He is very well-versed in operations, building teams and that side of the business. He and I have very different skill sets, which is why we’re great partners.
Back to the business model, let’s say that we find a community in Missouri and we go in and it’s at 50% occupancy. There’re 25 homes that need to be renovated and there are issues in the communities, there’s infrastructure problem and the morale is gone. It’s taking a look at the big picture. We built out a construction company as part of the organization. We’ve got about 40 W2 employees that travel in groups. We’re renovating about twenty homes across the portfolio a month. We’ll go in and spend $5,000 or $10,000 on a home, which could’ve been on demo sheet in such horrible condition. Everything from windows to appliances, subfloors, paint, carpet, renovate thoroughly the unit and all of a sudden there’s a really nice used manufactured home for someone to buy. Maybe that’s a $15,000 or $20,000 home. We also bring in new homes through. We were buying homes through Clayton Homes, which is a Berkshire Company and those are about $35,000, $40,000, $45,000 price point.
If you have your resident hat on, you’ve got two different options for a home there. Essentially in our model, we want as many of the residents as possible to be owners. We do some rentals but it’s a small percentage because we want that pride of ownership. We want people to own their homes and have some skin in the game. That in itself is a big part of the process. You’re literally taking an asset that’s undervalued that’s turnaround project and you’re going in. Maybe the trees haven’t been trimmed in ten years and you have to spend $70,000 in tree trimming. Whether it’s sewer problems because a lot of these communities were built in the ‘50s and ‘60s, infrastructure or road issues. There’re so many things that are on more of a cap X budget.
Slowly as you bring in new homes, you clean up the park, you take out the trash and you get rid of all the tenants that shouldn’t be there, then there are little things. We’ve been planning to build little gathering areas, whether it’s a swing set and a barbecue. Where when the weather is nice, the people can go and get together and do a barbecue once a month, once a week or whatever that is. A lot of the previous owners stopped putting money into these communities, which over five, ten, twenty years started to have a negative effect. It’s literally trying to bring this back up to a really clean, and safe community. Most of our parks will never have pools or clubhouses and things like that. That’s not the reality but they can still be a nice safe place to live.
We’re going to get into the business side of things but it’s one of those opportunities where it’s always been very local. Where you have the complexities, the moving parts I would say, I’m not sure what the turnover is but it’s a hands-on project or an investment. In your experience, you’ve seen mostly local ownership. They’re not operators either, it’s something they had. I remember some of the stories you’ve told me as far as not even having rent rules and you’re not knowing what the occupancy rate history has been. That provides a lot of opportunity number one, to get a discounted asset and number two, to add operational efficiency to it through your team being able to operate in all States. That right there makes it not just a short-term acquisition success, but a long-term success as well.You need to have a divide and conquer mentality of what you're going to be focusing on. Click To Tweet
A lot of the time when you nailed it, you’ve got someone that inherited the community from their parent over time or maybe they’ve owned it for years. They’re getting older and maybe they’re managing it from outside of that area. The same processes and everything that we have in our communities in Missouri is the same as our communities in Tennessee and the same in Kansas. You’ve got to build out those operational efficiencies across the board. What we call them as the mom and pop or the legacy owners is they probably didn’t go to school to learn how to run a business. They’ve been doing it whether they wanted to get into that business or not. They’re going by what they think is the right thing to do. A lot of the times that’s 75% of the communities that we buy.
We’re going to learn next about how he and his partners operate the business. As you have learned from past episodes, the investment and the idea is one thing but then it’s the operation and actually making it successful, which is entirely different. That usually is what either makes or breaks a long-term opportunity. I’ve had the fortunate opportunity to know you and see your journey. It was about a little less than a year ago where I came out to Arizona. It’s a short flight from Salt Lake and I got to visit with you and Mike and see your vision. I got an idea of how you guys were operating and it was fascinating to me. The idea of putting a team together is not the easiest thing to do. Getting people to work together with a common purpose and finding people but you guys have made that trek. You have put together an incredible team. Would you be willing to maybe talk a little bit more about your business? How you operate the different people you’ve found and their backgrounds? Maybe a little bit why you chose them and the importance of the overall structure of your company as it relates to the success of the investments that you’re putting together.
It goes back to having a world-class team in this space. Anything in affordable housing, in general, is going to be a challenge to operate. As long as you go into that knowing that trying to outsource a lot of things or subcontract certain things, it’s not going to work. We’re currently operating and based in Phoenix. We’re operating in twelve states. Somewhere around 100 employees across the board, including all managers and maintenance at the community. We have different companies. We have a construction company which I mentioned, we’re at 40 folks. Those guys are out in the field traveling. They’re superintendents, supervisors, carpenters, laborers and their sole focus is turning units and renovating units. They’ve got someone on site that’s overseeing them. They know the process, they know specifically how to renovate these homes. They’re different than stick-built single-families. We have those crews that travel around. They’re managed by someone that’s in our home office and obviously, that company has very specific targets. We have X amount of communities that are on the list to renovate. We have multiple crews that are moving. There’s all the auxiliary stuff being licensed in those states and all those moving pieces.
Once a home is renovated, once all the punch list items are done then it goes into the marketing team’s hands where they then market that home for a sale. It’s a different model than if you have multifamily, you’re renovating apartments and then renting them. These are single units that are then being sold. The resident has to come in, they have to put down 5% to 10%. Typically, that’s $15,000, $20,000 on a used home or maybe it’s $35,000 to $45,000 on a new home. In our space and affordable housing in general, that’s one of the big challenges, the down payments from the residents. That goes back to our resident basis that most people aren’t sitting on $5,000 in cash and that’s the reality. That’s a big problem that we’re in the middle of trying to solve. Once we find a resident, they qualify, all of the residents have financing. There’s not a single resident who comes in and buys something with $20,000 in cash. They’re all financed and then they move in there. They’re a part of the community. There’s the management side, which is ongoing in its collections. The managers always typically responsible for showing the unit. I don’t know if that answered your question but a lot of moving pieces in this model.
When I’ve known you through this entire process and I have been able to have a backseat view of what you’ve been successful at. You were doing a lot of the discovery and a lot of this stuff yourself for a while. That’s important, especially when you’re starting up a company, but you can’t do that forever. It’s trying to run it a sprint pace for a marathon length. The point is, you saw how everything worked but realized that you couldn’t do everything, especially at scale. Maybe talk about joining up with Mike and then understanding that he has the experience of working with a lot of different people, who all had different roles and coming together for an end purpose. Maybe talk about how you’ve put together your team based on all the different elements of the deal. Where you found people, what are some of their backgrounds and so forth?
Several years ago, we were running as a virtual company and we had people in different states. Our recruiter and HR person were in Portland, Oregon. We had an integrations person in Denver. People were all spread out all over the country. One of the first things that Mike and I started to work together several years ago is, we need to pull everything in. We really needed a brick and mortar office in this space. That was a big initiative in 2018. Months ago, we opened up an office here in Phoenix and we’re in Gilbert, which is a little suburb of Phoenix. We started with maybe six or seven people in the office. Some of the folks who had been working with us for years actually started to move to Phoenix, which was great instead of rehiring for that role. Going back to Mike and what some of his strengths are, everyone stays in their lanes, processes and that part of running an operations team fell on his desk. We outgrew that office maybe two or three times and moved into a new space. We’re at somewhere around 22 full-time people.
The goal as a business owner, an entrepreneur, and being someone who’s raising capital as well as being an operator is you want to go from wearing twenty hats to ideally wearing only a couple hats. Sometimes that takes years and years to do and there’s certainly plenty of things that you can hire for. Bringing in Mike as my partner was huge because he’s experienced in that. We had a very much a divide and conquer mentality of, “Here’s what you’re going to be focusing on.” We’ve got a great partnership and relationship and I trust him. He is working on X and I’m working on Y. Certainly, we have initiatives together and high-level things we’re working on, but it was divide and conquer to get these operations and all the team built.
You’ve also had a seat with being able to observe and be around groups of other entrepreneurs and investors that are putting together deals, whether apartment deals or single-family blocks or tracks. You’ve seen as well as I and we know some of the same ones of big failures but also big successes. I know you have a very close relationship with Ken McElroy and then others that have done very well in the real estate investment, by putting investments together and being successful with them. Who are your primary influences and how has your network helped you to be a better business owner and also a better investor?It's trial and error. When you try one thing and it doesn't work out, you have to make a shift. Click To Tweet
The past years I’ve read or listened to more audiobooks in that side than I had ever before. I’m constantly looking at different groups to join, looking at different people to get around. It’s interesting, Ken McElroy and I are pretty good friends and he’s done something similar. He’s obviously on a different league and he’s doing multifamily but has an operations team. He has a construction company. Being able to bend his ear on problems that you’re having or anything like that and a mentorship role has been unbelievable. A lot of people that we know have also raised a lot of money and maybe they don’t have the team in place or they’re not an operator but they’re raising money and using third parties or passing it off to someone. That’s a whole different animal in itself. Ryan Moran as an example, we spent some time around Ryan and his group. That eCommerce business and challenges that people have in that space. You get around different people who are all entrepreneurs and going through different growth patterns. Everyone has issues that they’re trying to solve and a lot of time there are some commonalities between that, even if someone is selling a physical product on Amazon versus running a manufactured housing company. You can definitely pull some commonalities out from it.
Business is business and there are business fundamentals, it doesn’t matter what your product or your services is. As I’ve discussed with you and really where I’m trying to focus on financial strategy and financial investment opportunity, is that ideas definitely have merit and I’m not discounting ideas. In this case, it’s a niche market in the real estate industry. There have been ideas that I had been good but poorly executed and ultimately its failure. There’re businesses that have lackluster product or outcome or service, but yet because of how well the business has run, business is successful. I wanted to go down this line of questioning is because as I’ve looked at investment, especially in real estate investment which is more commonly referred to an alternative investment, is that you have cool innovative ideas. At the same time, what I’ve seen as a success and failure has nothing to do with the idea and has everything to do with the underlying business. That’s where we took this direction as far as how the business operates, who are the operators, and who’s on the team? That is paramount to the overall success of the business, which in this case is an investment. You and I’ve had multiple discussions around that and I think we’re on the same wavelength to an extent.
It’s like anything else. It’s trial and error. You try one thing and it doesn’t work out so you have to make a shift. We spent a lot of time in 2017 and 2018 ripping apart different systems and processes, “That didn’t work. Why didn’t it work? We have to do that in-house and maybe it costs a little more upfront but saves money down the line or whatever it is.” One of our big takeaways in this space really to be a successful operator, especially for an affordable housing you need a team. It’s not something that you can go hit an easy button to subcontract out to and there’s everything else along with having a growing company, its culture and all the things that you’ve spent so much time and energy on. There are a lot of layers and complexity to it.
Andrew, this has been awesome. I’m so proud of your success and what you’ve accomplished. I can’t wait to see what you guys do. Why don’t we take a moment for you to talk to the audience about how to get in contact with you? What are some of the types of investments, opportunities that you have? Who’s the right investor for it?
The website is FourPeaksPartners.com and if anyone wants to set up a time to talk with someone on our team, you can send an email to Investors@FourPeaksPartners.com and put free consultation on the subject. We had a pretty big acquisition year of this year and we plan on having another strong acquisition. We’re fortunate enough that we’re still finding assets and decent cap rates. There’re lots of opportunities and we’ll continue to be in a big acquisition trend as long as the deals pencil out.
Andrew, thank you for joining us. Thank you for your support of the show, our friendship and I wish you the best.
Thanks, Patrick. I appreciate all you do.
- Four Peaks Capital
- Park Place Communities
- Cash Flow Wealth Summit
About Andrew Lanoie
Andrew Lanoie is an expert at building teams and connecting people with opportunities. Formerly a Talent Agent at William Morris for 16 years representing some of the world’s biggest celebrities, including Tim Allen, Taylor Swift, Steve Martin and Tom Petty, to name a few. In 2009, Andrew began investing in single-family residences and acquired well over 100 properties in under 4 years. During this timeframe, he discovered the massive demand for affordable housing in America and chose to leave the agency and focus full-time on real estate investing. After a few initial investments in manufactured housing and mobile home parks, Andrew realized the opportunity for a powerful and positive disruption in the market by providing the dignity of a free-standing home with the affordability of manufactured housing—and hence the creation of Park Place Communities. In less than 5 years, Andrew and his team have closed on over 26 manufactured housing communities in 12 states, with close to 1,800 lots, quickly making Park Place Communities a Top 100 Owner and Operator in the U.S.
With his sights set firmly on becoming a national Top 10 Owner and Operator, Andrew will continue to lead the vision and execution strategies on a daily basis. Andrew will focus on growth through strategic partnerships, scaling the companies, and investor relations.